Housing Finance in South Sudan

Macroeconomic Overview

South Sudan finds itself in fragile circumstances after years of civil war.  Intractable political divisions are estimated to have caused 400 000 deaths and the displacement of 4.5 million people.[1]  As a result of the upheaval, the highest number of refugees from an African country comes from South Sudan. Political settlement is still elusive with ongoing, albeit lower, levels of violence following the Revitalized Agreement on the Resolution of Conflict in South Sudan (R-ARCSS) in place since August 2018.  Continued delays in implementing a power-sharing agreement have wrought significant economic costs amid active armed conflict.

 

South Sudan has experienced profound economic challenges in its short history as a nation state.  Growth in GDP plummeted from 17.19 percent in 2011 to 3.93 percent in 2018.[2]   While inflation decreased from its peak (in 2016) at almost 380 percent, it was still high at 83.5 percent in 2018.[3]  The Bank of South Sudan (BSS) seeks to reign in consumer price increases to 25 percent.[4]  The country’s fiscal deficit is projected to rise to 4.1 percent from 3.1 percent in 2019 with government spending increasing and limited generation of revenue outside the country’s dominant petroleum sector.[5]  The BSS reintroduced debt products via treasury bills with one-year maturities in 2016 after an unsuccessful trial in 2012 and 2013.

 

Oil extraction accounts for 60 percent of the country’s GDP.[6]  Additionally, revenues from the country’s petroleum reserves fund nearly the entirety of the government’s budget – valued around SS£92.7 billion (US$584 million) in 2018.[7]  Yet, South Sudan has been unable to exceed the production level attained before the country’s independence of 360 000 barrels per day (bpd) in 2009.  Production was under 175 000 bpd in 2018, less than half of pre-independence levels.  This underperformance stems from mismanagement as well as political disputes both within the country as well as with Sudan.

 

Despite the value of oil reserves, South Sudan lacks foreign exchange reserves.  The national currency, the South Sudanese pound, continues to slide, and depreciated an additional 21 percent of its official value to the US dollar in 2018.[8]  There is also a parallel market for the South Sudanese pound in which the exchange rate has depreciated 65 percent more than the official exchange rate with the US dollar.[9]  These political and economic issues have hampered South Sudan’s economic development, including the country’s financial and housing sectors.

 

[1] Checchi, F., Testa, A., Warsame, A., Quach, L. and Burns, R. (2018). Estimates of crisis-attributable mortality in South Sudan, December 2013-April 201 – A Statistical Analysis. https://crises.lshtm.ac.uk/wp-content/uploads/sites/10/2018/09/LSHTM_mortality_South_Sudan_report.pdf (Accessed 26 August 2019). Pg. 7.

[2] International Monetary Fund (2019). World Economic Indicators Database. https://www.imf.org/external/pubs/ft/weo/2019/01/weodata/download.aspx (Accessed 8 August 2019).

[3] International Monetary Fund (2019). World Economic Indicators Database, 2019. https://www.imf.org/external/pubs/ft/weo/2019/01/weodata/download.aspx (Accessed 8 August 2019).

[4] Bank of South Sudan (2018). Monetary and Banking Policies for the Year 2019. https://bankofsouthsudan.org/mp/BankofSouthSudanMonetaryandBankingPoliciesfortheYear2019.pdf (Accessed 26 August 2019). Pg. 3.

[5] World Bank Group (2019). Macro Poverty Outlook Indicators. https://www.worldbank.org/en/region/afr/brief/macro-poverty-outlook-sub-saharan-africa (Accessed 4 August 2019).

[6]African Development Bank (2014). South Sudan Interim Country Strategy Paper 2012-2014. https://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2012-2014%20-%20South%20Sudan%20-%20Interim%20Country%20Strategy%20Paper.pdf (Accessed 5 August 2019). Pg. 3.

[7]African Development Bank (2014). South Sudan Interim Country Strategy Paper 2012-2014. https://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2012-2014%20-%20South%20Sudan%20-%20Interim%20Country%20Strategy%20Paper.pdf (Accessed 5 August 2019).

[8] Bank of South Sudan (2019). Depository Corporations Survey 23rd August 2019’. https://bankofsouthsudan.org/research-and-statistics/monetary-statistics/ (Accessed 24 August 2019).

[9] Bank of South Sudan (2019). Depository Corporations Survey 23rd August 2019. https://bankofsouthsudan.org/research-and-statistics/monetary-statistics/ (Accessed 24 August 2019).

Access to Finance

There are 30 commercial banks in South Sudan.  Among these banks are seven foreign banks with headquarters in Kenya, Ethiopia and Qatar. Local banks are affiliated with politically connected individuals close to the government of South Sudan.[1]  A report from an anticorruption civil society group asserts these banks may be exposed to undue political influence.[2]  The alleged dubious ties mean the South Sudanese banking sector may be at risk of becoming isolated from the global financial system.  The potential for such international de-risking threatens to make South Sudan’s banks extend financing at even higher costs.

 

Access to banking is constrained in South Sudan.  Only nine percent of the population aged 15 years and older had a bank account in 2017.[3]  This is progress compared to only one percent of the South Sudanese population having a formal bank account in 2012.[4]  An August 2019 central bank survey further indicated a majority of deposits were from non-residents.[5]  The limited access to finance, with only 110 000 citizens engaging the banking sector makes financial services relatively exclusive.  Instead, South Sudanese turn to informal groups, such rotating savings and credit associations (ROSCAs) called merry-go-rounds.  Members from these community savings groups meet periodically to collectively pool their money for the benefit of select members.  The recipients of the group funds rotate for each meeting receiving either the lump sum of collected funds or items bought by the group, such as electronics and appliances.

 

Despite their limited customer base, commercial banks have consolidated their financial positions.  The banks have grown their deposits 64 times since South Sudan’s independence, while loans grew almost 35 times from 2011 to 2018.[6]  The non-performing loan rate was 5.1 percent in 2018, reaching a post-independence low.[7] While bank deposit-taking and lending have grown, credit for construction and real estate has been almost static. These loan types made up 18 percent of commercial banks’ lending portfolio and grew slightly to 19 percent in 2018.[8]  Housing finance represents a smaller component of commercial bank lending.

 

There are approximately 821 home loans in South Sudan in 2019.[9]  The average loan size for these loans is approximately SS£793 314.6 (US$5 000).[10] The maximum home loan size is SS£6 346 516.6 (US$40 000).[11]  These mortgages typically have a short payment period of three years.[12]  In 2019, the average interest rate was about 24 percent for a home loan.  Two Kenyan affiliated banks, Equity Bank South Sudan and Kenya Commercial Bank (KCB), are the largest financial institutions.  The former is the largest bank with 48 percent market share of customers.  They are also the largest mortgage finance providers to South Sudanese borrowers.  Most customers are government salaried employees as well as South Sudanese expatriates physically accessing their bank accounts abroad.[13] Thirteen other banks have provided housing loans in South Sudan. However, residential lending activities have mainly halted since armed conflict resumed in 2013.

 

The government of South Sudan has focused on expanding housing finance to civil servants.  The cabinet approved the establishment of the Housing Finance Bank in 2013 with the explicit mandate of expanding home lending to government employees.  The government intended for the bank to have SS£31.7 billion (US$200 million) in initial financing with 31 percent coming from domestic investors, 49 percent from abroad, and the remainder from the public sector.[14]  However, the Housing Finance Bank was unable to attract the needed capital.  The financial industry has experienced greater success in the microlending space.

 

There are 11 microfinance institutions (MFIs) in South Sudan that have an estimated 51 092 customers and 36 446 borrowers.  MFIs include Sudan Microfinance Institution, Finance Sudan Limited, Rural Finance Initiative and Manna Microfinance. The overwhelming majority of microloans are six to 24 months in term and used primarily for business ventures, particularly in the agricultural sector.  However, it is common for borrowers to often use their microloan proceeds to also upgrade their shelter as a means of building their business. The central bank has expressed interest in developing the microfinance sector to expand access to finance.[15]  In 2015, the government formed the South Sudan Microfinance Development Facility (SSMDF) within the Ministry of Trade, Industry and Investment with support from the Multi Donor Trust Fund.  The political and economic challenges though have contributed to declining donor interest and ultimately suspension of activities from foreign micro creditors.[16]  It remains to be seen whether these microcredit activities will resume in the near future given the ongoing strife.

 

[1] Ferullo, M. (2018). The Sentry: Banking on war: Ending the abuse of South Sudan’s banking sector by political elites and pushing for peace. https://thesentry.org/reports/banking-on-war/ (Accessed 26 August 2019). Pg. 3.

[2] Ferullo, M. (2018). The Sentry: Banking on war: Ending the abuse of South Sudan’s banking sector by political elites and pushing for peace. https://thesentry.org/reports/banking-on-war/ (Accessed 26 August 2019). Pg. 3.

[3] World Bank (2017). The Global Findex Database 2017. https://globalfindex.worldbank.org (Accessed 2 September 2019).

[4] Telephonic interview with Professor Peter Pitya, 28 July 2019, South Sudan.

[5] Bank of South Sudan (2019). Depository Corporations Survey 23rd August 2019. https://bankofsouthsudan.org/research-and-statistics/monetary-statistics/ (Accessed 24 August 2019).

[6] Bank of South Sudan (2019). Statistical Bulletin. https://bankofsouthsudan.org/st/19/STATISTICALBULLETINAug19.xlsx (Accessed 20 August 2019).

[7] Bank of South Sudan (2019). Statistical Bulletin. https://bankofsouthsudan.org/st/19/STATISTICALBULLETINAug19.xlsx (Accessed 20 August 2019).

[8] Bank of South Sudan (2019). Statistical Bulletin. https://bankofsouthsudan.org/st/19/STATISTICALBULLETINAug19.xlsx (Accessed 20 August 2019).

[9] Telephonic interview with Professor Peter Pitya, 28 July 2019, South Sudan.

[10] Telephonic interview with Professor Peter Pitya, 5 August 2019, South Sudan.

[11] Telephonic interview with Professor Peter Pitya, 25 July 2019, South Sudan.

[12] Telephonic interview with Professor Peter Pitya, 19 August 2019, South Sudan.

[13] Bank of South Sudan (2019). Standardized Reports August 2019. https://bankofsouthsudan.org/research-and-statistics/monetary-statistics/ (Accessed 24 August 2019).

[14] Ngor, N. (2013). South Sudan Approves Mortgage Lender Amid Housing Shortage. Bloomberg. https://www.bloomberg.com/news/articles/2013-05-01/south-sudan-approves-first-mortgage-lender-amid-housing-shortage (Accessed 18 August 2019).

[15] Ferullo, M. (2018). The Sentry: Banking on war: Ending the abuse of South Sudan’s banking sector by political elites and pushing for peace. https://thesentry.org/reports/banking-on-war/ (Accessed 9 August 2019). Pg. 3.

[16]World Bank (2019). Macro Poverty Outlook Indicators. https://www.worldbank.org/en/region/afr/brief/macro-poverty-outlook-sub-saharan-africa (Accessed 4 August 2019).

Affordability

Most urban households in South Sudan earn annual incomes between SS£793 314.6 (US$5 000) and SS£1 269 303.3 (US$8 000) according to 2018 data from the Canback Global Income Distribution Database. This income level makes it difficult for the average household to afford the cheapest formal housing unit in urban areas – priced at SS£12 645 600 (US$80 000) for 90m².  The conditions for obtaining a mortgage make home purchase even more difficult for those households unable to save a significant portion of their salaries over many years.

 

Exorbitant lending rates make it financially burdensome for the median South Sudanese household.  Interest rates of 24 percent for a typical home loan term of 20 years means a borrower has significant costs to pay.[1] The typical mortgages require a 55 percent down payment.[2]  Thus, for the cheapest formal house, this means the borrower would need to save SS£6 955 080 (US$44 000) upfront. Borrowers able to save up for a lump sum would subsequently need to make a monthly payment of about SS£114 758.8 (US$726) for the 20-year period until the principal is repaid.  The monthly payment is out-of-reach since it is more than 130 percent of the average South Sudanese income in urban areas.

 

Housing affordability becomes more challenging when assessing the national level, incorporating rural households.  A high percentage of South Sudanese (82.3 percent) are estimated to be at the international poverty level of SS£3 014.6 (US$19) per day in 2019.[3]  For this segment, prospective tenants seeking to rent urban housing would have to pay more than twice their monthly wage to afford the cheapest unit in the formal market.  The lack of government support, such as subsidies, for the low income market also makes it difficult – if not impossible – for the considerable gap to be closed between substantial demand and the practically non-existent supply of affordable housing.

 

[1] Telephonic interview with Professor Peter Pitya, 2 August 2019, South Sudan.

[2] Telephonic interview with Professor Peter Pitya, 2 August 2019, South Sudan.

[3]Bank of South Sudan (2019). Statistical Bulletin. https://bankofsouthsudan.org/st/19/STATISTICALBULLETINAug19.xlsx (Accessed 26 August 2019).

Housing Supply

Approximately one-in-five South Sudanese families live in cities.[1] There are 2.6 million urban households and 10.6 million rural households. Almost all housing units in South Sudan are owner occupied with only two to three percent as rentals.[2]  The estimated housing backlog is four million units nationwide.[3] There is a substantial need for structural improvements in the country’s housing stock.  A regional study has shown that South Sudan’s housing had the least amount of quality improvements from 2000 to 2015 in Sub-Saharan Africa.[4] The government has reported 93 percent of housing units in 2013 were made of earthen building materials, including grass-thatched roof and mud walls.[5]  Building materials are often imported into the country, accounting for high costs at variable prices throughout the country.

 

A variety of different public, private and third sector actors have stated their interest in residential development to improve the quality of life and increase housing supply in South Sudan. The government is working on a masterplan community project in Central Equatoria State. The masterplan encompasses an area of 16km².  As part of the masterplan, the government hopes 9 000 housing units will be built with cash purchase and lease-to-own options.[6]  KCB signed a SS£71.7 billion (US$452 million) agreement with the government to finance the building of 1 750 houses for civil servants in 2009.  However, the masterplan and agreement were suspended due to political and economic conditions.  The United Nations Human Settlements Programme (UN-Habitat) has also built 5 000 housing units for returnees and refugees.[7] Foreign developers, such as those from Ethiopia and Eritrea, have developed residential and commercial properties in places like the Alta-Bara, Nirma-Talaata, Hai-Thawra and Hai-Malakal areas of Juba.[8]

 

[1] BRAC (2016). BRAC South Sudan Annual Report. http://www.brac.net/images/reports/2016/AR16-South%20Sudan.pdf, (Accessed 14 August 2019). Pg. 7.

[2] Telephonic interview with Professor Peter Pitya, 16 July 2019, South Sudan.

[3] Telephonic interview with Professor Peter Pitya, 18 August 2019, South Sudan.

[4] Tusting, L., Bisanzio, D., Alabaster, G., Cameron, E., Cibulskis, R., Davies, M., Flaxman, S., Gibson, H., Knudsen, J., Mbogo, C., Okumu, F., Seidlein, L., Weiss, D., Lindsay, S., Gething, P. and Bhatt, S. (2019). Mapping changes in housing in sub-Saharan Africa from 2000 to 2015. https://www.nature.com/articles/s41586-019-1050-5 (Accessed 12 August 2019). Pg. 391.

[5] Telephonic interview with Professor Peter Pitya, 12 July 2019, South Sudan.

[6] Telephonic interview with Professor Peter Pitya, 18 July 2019, South Sudan.

[7] Telephonic interview with Professor Peter Pitya, 1 August 2019, South Sudan.

[8] Telephonic interview with Professor Peter Pitya, 12 July 2019, South Sudan.

Property Markets

Real estate has been one of the most active sectors in South Sudan alongside the banking and agricultural sectors.[1] As such, the African Development Bank (AfDB) has asserted there is potential for investment in South Sudan’s property market to help strengthen the country’s economy.[2]  In a country in which close to 20 percent of the national population resides in cities, urban properties are priced at a premium and more accessible to high-income earners, including expatriates.[3]  Rent for apartments located close to city centres such as the Tongping, Kator and Munuki neighbourhoods in Juba is costly, ranging from SS£1 million to SS£2.5 million.  Home purchase is also expensive in urban areas costing several hundred million South Sudanese pounds.[4]

 

There are difficulties in doing business in South Sudan’s property markets.  The World Bank Doing Business Indicators rank the country among the world’s most challenging. There are 27 procedures, taking on average 124 days, to obtain property licensing for commercial real estate, far higher than the regional average of 14.7 for Sub-Saharan Africa and 12.7 for high income member states in the Organisation for Economic Cooperation and Development (OECD).[5] The unpredictable security situation further complicates real estate investment, especially for land.

 

The South Sudan Land Commission (SSLC), established in 2006 as part of the Comprehensive Peace Agreement, regulates land and provides registration and title for public, private and community ownership.  Most South Sudanese, about 87 percent of the population, primarily consisting of farmers and ranchers, depend on customary land tenure, particularly in rural areas.  South Sudan legally recognises customary user rights to land and security of tenure.[6]  Private land consists of freehold and leasehold tenure. The SSLC grants leases for terms up to 99 years.[7]  An estimated 13 percent of the population holds leasehold land.[8]  Despite development of the SSLC and related laws, land grabbing continues to be regarded as commonplace.  In addition, land registries are decentralised, managed at the state level as well as with the judiciary, and suffer from substantial gaps in information.  The lack of completeness is significant, with one survey reporting less than 50 percent of private land records are readily identifiable in the registry or cadastre.[9] 

 

[1]Bank of South Sudan (2019). Statistical Bulletin. https://bankofsouthsudan.org/st/19/STATISTICALBULLETINAug19.xlsx (Accessed 26 August 2019).

[2]African Development Bank (2014). South Sudan Interim Country Strategy Paper 2012-2014. https://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2012-2014%20-%20South%20Sudan%20-%20Interim%20Country%20Strategy%20Paper.pdf (Accessed 26 August 2019). Pg. 6.

[3] United Nations Department of Economic and Social Affairs (2019). World Urbanisation Prospects. https://population.un.org/wup/ (Accessed 3 September 2019).

[4] Telephonic interview with Professor Peter Pitya, 3 August 2019, South Sudan.

[5] World Bank Group (2019). Doing Business 2019. https://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB2019-report_web-version.pdf (Accessed 26 August 2019). Pg. 204.

[6] Martin, E., and Mosel, I. (2011). City limits: Urbanisation and vulnerability in Sudan: Juba case study. https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/6511.pdf, (Accessed 26 August 2019). Pg. 19.

[7] Deng, D. (2014). South Sudan Country Report Findings of the Land Governance Assessment Framework. https://openknowledge.worldbank.org/bitstream/handle/10986/28520/119635-WP-P095390-PUBLIC-7-9-2017-10-34-1-SouthSudanCountryReport.pdf?sequence=1&isAllowed=y (Accessed 26 August 2019). Pg. 40.

[8] Telephonic interview with Professor Peter Pitya, 14 August 2019, South Sudan.

[9]Ministry of Finance, Planning and Economic Development (2018). Fiscal Report for Q1 2017/2018.  http://grss-mof.org/docs/first-quarter-2017-18-quarterly-fiscal-report/ (Accessed 26 July 2019). Pg. 2.

Policy and Regulation

The government of President Salva Kiir Mayardit has promised to implement its policy of “taking towns to the people”.[1] This policy of using urbanisation to promote economic development has encountered implementation challenges, particularly with financial resources and capacity. The annual budget expenditures for the Ministry of Lands, Housing and Urban Development in 2018 was SS£22.7 million (US$143 070.6).[2] This amount makes it difficult for the government to have robust housing programmes. The average government salary is about SS£5 000 (US$31.5). These wages make it difficult for the public sector to attract the best human capital. Moreover, fiscal constraints have made it common for the government to miss timely payment of civil servant wages.

 

The Ministry of Land, Housing and Urban Development has worked on inputs that could help contribute to a housing policy in the future.  Article 34(1) of the Constitution of South Sudan explicitly states a “right to housing”.  However, there is neither political will nor significant budgetary allocation for a housing policy and its implementation. These policy inputs come from the urbanisation strategy, positioning housing as a component of the Central Equatoria State masterplan. The approval of the Housing Finance Bank and the formation of the SSMDF further illustrate the extent of the government’s ambitions – but the difficulties without a formulated cabinet-approved housing policy make implementation challenging.

 

[1] United Nations Department of Economic and Social Affairs (2019). World Urbanisation Prospects. https://population.un.org/wup/ (Accessed 3 September 2019).

[2] Tusting, L., Bisanzio, D., Alabaster, G., Cameron, E., Cibulskis, R., Davies, M., Flaxman, S., Gibson, H., Knudsen, J., Mbogo, C., Okumu, F., Seidlein, L., Weiss, D., Lindsay, S., Gething, P., and Bhatt, S. (2019). Mapping changes in housing in sub-Saharan Africa from 2000 to 2015. https://www.nature.com/articles/s41586-019-1050-5 (Accessed 12 August 2019). Pg. 391.

.

Opportunities

Armed conflict, substantial displacement, currency devaluation and price hikes are some of the circumstances that have come to define the experience of South Sudan.  Such conditions make South Sudan a “high-risk, high-reward” business environment in which practically everything is needed. Infrastructure is no exception. Roads need to be paved, electrification and waste management facilities need to be built, and houses for all income segments need to be constructed. The question is whether these opportunities can be realised amid armed conflict and economic hardship.

 

The uncertainty is real since the R-ARCSS power-sharing agreement of 2018 may still not be implemented for the foreseeable future.  The political transition in neighbouring Sudan presents an intriguing development that could foster better conditions, as indicated with the April 2019 ceasefire agreement, towards advancing peace between the two countries.  Yet, questions remain as to whether South Sudan can resolve political rivalries for a peaceful future.

 

The relative success of MFIs demonstrates the opportunity to expand access to housing finance for low income households and vulnerable groups.  Other African countries, particularly neighbouring Kenya, have savings and credit organisations as a prominent feature of their financial markets.[1] The presence of the ROSCAs and their popularity with those outside South Sudan’s banking sector demonstrates the potential that may exist.  If South Sudan can strengthen nonconventional financial service providers, the country can then cope with the political and economic conditions and prod the advancement of housing finance through alternative means.

 

[1] Feather, C., and Meme, C.K. (2018). Consolidating inclusive housing finance development in Africa: Lessons from Kenyan savings and credit cooperatives. https://www.ajol.info/index.php/aref/article/view/174623 (Accessed 26 August 2019). Pg. 82.

Availability of data on housing finance

There are significant challenges in obtaining housing and financial sector data on South Sudan. The fledgling country has challenges that are logical for a nation state that has existed for less than a decade. Data from the Bank of South Sudan (bankofsouthsudan.org) and the Ministry of Finance and Economic Planning (grss-mof.org) provide insights in financial market developments with central bank statistics and ministerial fiscal reports produced quarterly. The National Bureau of Statistics (ssnbs.org) conducts national surveys. However, these surveys, like the 2008 population and housing census, are conducted irregularly.

Websites

Bank of South Sudan https://bankofsouthsudan.org/

Ministry of Finance, Planning and Economic Development http://grss-mof.org/

National Bureau of Statistics https://ssnbs.org